Bankruptcy is a difficult experience that can take an emotional and financial toll on individuals and families. It’s important to understand the underlying causes of bankruptcy so you can avoid it if possible.
Here are 10 essential facts about what causes the most bankruptcies in the United States today. From medical debt to student loans, these are some of the main reasons people find themselves filing for bankruptcy protection each year. Knowing this information can help you make more informed decisions when it comes to managing your finances and avoiding potential pitfalls in the future.
1. Medical debts are the leading cause of bankruptcy.
Medical debt can be particularly overwhelming since it often accumulates quickly due to medical emergencies, and medical expenses aren’t always covered fully by insurance. In fact, illness and injury account for around 60 percent of all bankruptcies in the United States.
2. Credit card debt is another major contributor.
Credit cards can create a false sense of security when spending money because you don’t always have to pay up front like you do with cash purchases. As such, people tend to spend more on credit cards than they would if they had to use cash or a debit card – this contributes heavily to consumer debt issues that can lead to bankruptcy.
3. Job loss is also a factor behind many bankruptcies.
A job loss can be especially devastating if it’s unexpected and the person hasn’t saved up any emergency funds or has little to no savings at all. Unemployment benefits may help but those are often not enough to cover living expenses, so people often turn to credit cards for assistance – leading them further into debt.
4. Divorce is another leading cause of bankruptcy for households that are already struggling financially.
Not only does divorce itself incur legal fees, but one partner may leave the marriage with a large share of the marital debt – leaving the other spouse in an even worse position.
5. Student loan debt is also a factor behind some bankruptcies.
Many students take out loans to pay for college tuition and other costs associated with higher education – but these loans can be difficult to repay if the job market is tight or if the person isn’t able to secure a good-paying job after graduation.
6. Personal bankruptcy can be caused by medical bills in some cases.
There is a large segment of bankruptcies that are due to medical debt, which affects nearly 2 million people every year. Learn more from our knowledgeable bankruptcy attorneys operating in Chula Vista. This fact is especially troubling as many of these individuals were previously covered by health insurance, but faced high deductibles or other forms of cost-sharing that made it impossible for them to pay their medical bills.
7. A lack of emergency savings can also contribute to bankruptcy filings.
Many Americans do not have enough money set aside to cover unexpected expenses, such as car repairs or medical emergencies, which can cause them to go into debt and eventually lead to bankruptcy if the debts become unmanageable.
8. Job loss is another significant factor in bankruptcy filings.
When a person loses their income, they can no longer use it to pay their bills; if the loss of income is prolonged and other sources of income are not available, the individual may find themselves unable to pay back their debts.
9. Divorce can also cause financial problems for both parties involved, as assets must be divided and alimony or child support payments become necessary. This can cause individuals to fall behind on their debts and eventually lead to bankruptcy.
10. Poor budgeting skills can contribute to bankruptcy as well, as individuals may have difficulty managing their finances and controlling spending habits that result in too much debt.
People who lack knowledge about personal finance or are unaware of how credit works often find themselves in a difficult financial situation.
The causes of bankruptcy are varied and complex, but these 10 essential facts can provide a better understanding of the problem and how to prevent it from happening to you. Knowing what factors may lead to bankruptcy can help you make more informed financial decisions, so that you don’t find yourself buried in debt. With proper planning and budgeting, you can avoid becoming one of the millions of Americans who are forced into bankruptcy every year.